A Scary Picture at DreamWorkshttp://www.businessweek.com/bwdaily/dnflash/jul2005/nf20050712_0498_db016.htm Wall Street's concern with DreamWorks Animation was summed up quickly by Kathy Styponias, the highly respected Prudential Equity analyst, during a July 11 conference call: "Help us feel comfortable...that sales of 50 million DVD units [of the 2004 blockbuster Shrek 2] are still achievable," she said. Ouch.For DreamWorks Animation (DWA ), which has produced such megahits as the two Shrek flicks and last year's Shark Tale, credibility on Wall Street has been tough to come by since its highly visible Oct. 28 initial public offering. ...It's scrapping, at least for now, a planned secondary offering that mostly would have benefited billionaire Paul Allen, who owns 59% of the animation studio.Plans for that offering had rankled analysts, who feared Allen would sell a large -- but not majority -- share of his holdings early on. Merrill Lynch analyst Jessica Reif Cohen remains worried that DreamWorks didn't rule out coming back to the idea, writing in a July 11 research note that the outfit is now saddled with an "overhang," which could continue to depress the stock. ...The company also said it had been notified by the Securities & Exchange Commission that, on the heels of several shareholder lawsuits claiming the company misled investors, an informal inquiry had been opened into DreamWorks Animation stock trades. DreamWorks Animation says it is "voluntarily complying" with the SEC, adding that it had been told by regulators that the investigation "should not be construed as an indication that any violations of law have occurred." ...Fulcrum Global Partners' Rich Greenfield wrote that "we are troubled by the inability to properly forecast earnings" and downgraded the stock from buy to neutral. And he isn't the only concerned analyst. Merrill Lynch's Cohen wrote that the weak DVD market might be a "strong signal" that DVD sales of Madagascar may be affected, despite earlier suggestions that the film "was on track with its expectations."And DreamWorks itself sent up yet another cautionary flag: Chief Financial Officer Kris Leslie indicated that the current and recently lowered projections for the year are based on a $170 million worldwide box-office gross for the studio's next offering, the claymation flick Wallace & Gromit: The Curse of the Were-Rabbit, scheduled for release Oct. 7. If Wallace & Gromit fails to deliver, DreamWorks' stock could take another blow.
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